Can I remortgage in the credit crunch?

Can I remortgage in the credit crunch? In a decade of rapidly rising house prices, plenty of people remortgaged to free up cash from their increasingly valuable property.

Today, you might think remortgaging in a credit crunch would be harder - and you`d be right. But even though house prices are dropping and mortgages are less available, many thousands of people are still remortgaging...

Equity: Can I still remortgage?

House prices are dropping, but they`re dropping from unprecedented heights. In September 2008, even after eleven solid months of house price falls, the average house was still worth £161,797 (according to the Nationwide House Price Index). That`s:

• over £3,000 more than it was worth in February 2006
• over £10,000 more than it was in January 2005
• over £100,000 more than it was in October 1997 !

In other words, plenty of homeowners own a lot of equity (the portion of their house that is entirely theirs, on which they don`t owe money to a bank or building society):

equity equals value of home minus value of mortgage / loans secured against it

In general, the longer they`ve owned their home, the more they`ll have - not just because the value of their home will have gone up more, but because they`ll have spent longer paying more off the mortgage (assuming it`s a repayment mortgage).

Advisability: Should I remortgage in the credit crunch?

Even if you can remortgage, that doesn`t mean it`s always a good idea. The less equity you leave in your house, the more likely you are to end up in negative equity if house prices drop further. (For more on negative equity, click here.)

Let`s compare two homeowners who are thinking about remortgaging:

Mrs Smith		Mr Jones
Mrs Smith borrowed £60,000 (as a mortgage) to buy an £80,000 house in September 2000.		Mr Jones borrowed £140,000 (as a mortgage) to buy a £160,000 house in March 2006.
She owned £20,000 of equity straight away (the deposit she`d put down).		He owned £20,000 of equity straight away (the deposit he`d put down).
Since then, the value of the house has gone up, then down, and it`s now worth around £160,000.		Since then, the value of the house has gone up, then down, and it`s now worth around £160,000 again.
She`s also spent eight years paying off the mortgage, which has now gone down to around £50,000.		He`s also spent two years paying off the mortgage, which has now gone down to around £138,000.
She now owes £50,000 on a £160,000 house - so she owns £110,000 of equity: £160,000 minus £50,000. So there`s plenty of equity in her house. As long as she can afford the repayments, plenty of mortgage providers would probably be happy to help her free up some of that equity - and it could be a great way for her to access money tied up in her property.		He now owes £138,000 on a £160,000 house - so he owns £22,000 of equity: £160,000 minus £138,000. So there is equity in his house, but it could disappear if the house`s value falls another £22,000. Even if a mortgage provider offers to help him free up some of that equity, it wouldn`t be a good idea - he`d be risking negative equity.

Availability: Will anyone help me remortgage in the credit crunch?

Even in the credit crunch, mortgage providers are still providing remortgages. According to the Bank of England`s statistical release in September, there were 64,000 remortgages approved in August 2008.

But mortgage providers have reduced the LTV (loan to value) ratio they`ll offer: this is largely because they`re not sure what`s going to happen to house prices, and they don`t want to offer people remortgages worth more than their house could be worth later on, if prices continue falling.

End of a mortgage: Do I have to remortgage in the credit crunch?

Finally, some people aren`t remortgaging to free up equity. They`re remortgaging because they`ve reached the end of their fixed-term mortgage and they`d rather take out a new fixed-rate mortgage than start paying their mortgage provider`s SVR (Standard Variable Rate) mortgage.

There are advantages and disadvantages to this. Now that the mortgage market is so changeable, it`s always a good idea to talk it over with a professional mortgage adviser.

---

If you are considering taking out a remortgage, contact one of our expert mortgage advisers today.

Related Resources:

• Remortgage
• Mortgage Advice

Tags: mortgage, remortgage, remortgages, credit crunch, can I remortgage, get a remortgage, getting a remortgage, UK

Our initial advice on your best financial solution is free. Fees payable when continuing service is provided. Calls may be recorded for training and quality purposes.